How does your hospital stay profitable?

March 25, 2019

A study released in December 2018 by Juniper Advisory analyzed audit data from 90 independent hospitals throughout the US. They found that 61% of these facilities had operating margins under 3% which is the threshold for the ability of a hospital to sustain services, fund debt obligations and support capital growth.  Equally concerning, the study reveals that in the sample group, almost half of the operating margin was due to investment income. This reliance on market returns is tenuous for any business, and the report states that portfolio losses are a real threat to many hospitals, with recent stock market declines underscoring the volatility and potential for decline. The report concludes that while “Juniper’s analysis focused on standalone hospitals, health systems have also been bolstered by investment income”. The findings reaffirm the need for hospitals to improve efficiency, cut avoidable costs and partner in order to operate sustainably in the near and long term.  

EHC NOTE: This study highlights an area of potential concern for all perioperative stakeholders.  With 80% of hospital based anesthesia provider groups receiving financial support to maintain services from their facilities, and with a seemingly endless list of capital requests for OR equipment and personnel, the operating room is an area with substantial cash requirements.  While it is not intuitive to link the environment for investment returns to the fulfillment of these cash needs, this study implies that negative returns may drive some hospitals to critically low margins at which point cash requirements for all items including those for the OR and anesthesia may be pressured.